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Royal London Asset Management only announced its push into private markets in October but chief investment officer Piers Hillier had been thinking about the move for several years.
The £153bn asset manager has hired William Nicoll from M&G to lead its foray into private markets, making it the latest fund house to expand into the alternative asset class.
Hillier says establishing private markets capabilities, a move that RLAM labels a “major strategic initiative”, had been considered for as long as five years.
“We have always played at the edge of private markets. We’ve often done relatively illiquid private placements but in partnership with other players,” says Hillier, who has been CIO since 2015.
“What’s changed is that the normalisation of interest rates and long bond yields has moved us to a pricing environment where there is a reward from risk. Repricing of private markets provides a great opportunity.”
READ Why regulators are coming for private assets
Nicoll had spent almost two decades at M&G and was latterly CIO for private and alternative assets, leading a team managing £70bn. “We’ve brought in talent at the right moment,” Hillier says. “The investment opportunity in private markets looks the most attractive for the first time in five or 10 years,”
More fund management groups have moved into private markets because assets such as private equity and private debt can bring higher returns and help diversify from publicly traded stocks. Hillier says RLAM scoured the market for acquisition targets, looking at 40 to 50 businesses in Britain and Europe but decided that growing its own was the best route.
“We’re always prepared to look at things but it’s about people, talent and investment performance and whether it chimes with our values. You often get people in a room and know within 10 minutes that the culture clash is real,” Hillier says.
“Looking at businesses to acquire was the starting point but I really couldn’t find anything that was a reasonable price, or allowed us to build with scale, or aligned with [internal] requirements.”
Hillier is coy over the products RLAM might roll out but says that any private assets launches will draw on his company’s experience.
“We’ve done a lot in areas close to asset-backed securities, which plays to our strengths,” he says. “In the real estate team, we have real estate equity. We do a lot of secured and covered bonds, so we understand real estate debt well. Those are logical areas to look at.”
READ ‘London can’t afford to be complacent’
RLAM is pushing into private markets at a time of higher scrutiny.
Nikhil Rathi, the boss of the Financial Conduct Authority, said in October that the regulator was “very, very focused” on emerging risks in private markets. He said valuations were an area it would watch more closely.
“I never feel nervous about valuation. We are reliant on independent sources to value assets,” Hillier says. “It will be helpful for private markets in some way to have some clarity around mark-to-model-type scenarios and to have some independent validation of those.”
After more than three decades in the City, Hillier has views about how to make it more attractive for businesses and international investors.
“If we can start to think about saving from a longer-term perspective, we are more likely to see more demand for UK equities, or less liquid parts of the market where investments can be made to grow the economy,” Hillier says. “If we had a scenario to take more advantage of the longer-term, we could easily arrest some of the challenges we’ve had.”
He questions whether offering members of defined contribution schemes the promise of daily liquidity is the right approach. “We’ve moved to the point of providing abundant liquidity to people and it is not really being used. That needs to be looked at.”
Critics of the current UK regime point to executive pay as a factor that is driving some companies to list in the US, where remuneration can be much higher. Asset managers have been singled out for often voting against executive pay packages in Britain but backing those offered in the US.
It is a tricky balancing act for asset managers, particularly those that champion their stewardship and engagement activities, where executive pay is scrutinised and challenged.
Hillier points to AstraZeneca chief executive Pascal Soriot, who was the highest-paid FTSE boss in the UK last year, receiving £15m. “Was he rewarded fairly? We felt so and supported his pay,” says Hillier.
“But we do raise issues where we feel pay is excessive against the returns given to shareholders, or where there has been pay for poor performance. We like remuneration schemes that link to longer-term returns.”
READ City divided over hiking exec pay to tackle IPO crisis
Despite the City’s current problems, Hillier is not “down on the UK”. “We’ve got a legal structure that protects investors, that is not even true in some parts of Europe. We sit in the right timezone. There is also a great talent pool.”
RLAM is keen to expand internationally. Hillier says the firm aims to develop in the EU and bolster its Asian presence.
It is about to hire in Germany, and Switzerland and Scandinavia are other markets of interest.
“The interest we’re getting from Europe suggests you’ll see more from us in the next 12 to 24 months.”
CV
Born
September 1968
Education
1992
MPhil in Management Science, University of Oxford
1990
Bachelor’s in Politics, University of Bristol
Career
2015-present
CIO, Royal London Asset Management
2012-14
Head of international equities, Kames Capital
2010-11
CIO, LV= Asset Management
2005-08
CIO for European equities, WestLB Mellon Asset Management
2004-05
Head of European equities, Deutsche AM
1997-2004
Various roles, Schroders
1992-96
Chartered accountant, Deloitte (Touche Ross)
To contact the author of this story with feedback or news, email David Ricketts
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